To say people were angry when Netflix announced even more price increases in July would be an outrageous understatement, to say the least.
But instead of people just complaining and moving on like we so often tend to do, the negative reaction was matched by significant losses. Netflix shares have dropped nearly 20% so far, and the company’s previous estimation of around 25 million subscribers by the end of the third quarter has now been lowered to 24 million, meaning at least a million people have already decided to bail on the service.
Instead of just leaving things be and see how they turn out, Netflix is making some more big changes (though none to prices, no worries).
Company co–founder and CEO, Reed Hastings, wrote a lengthy blog post Sunday doing something he should have done a long time ago: explain exactly why they decided to increase prices. He also revealed plans to integrate video games into their rental options, and Qwikster, the new name of their DVD service.
Here’s Hastings’ explanation for the price increase:
Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.
I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.
So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best.
Qwikster was the name chosen because of the quick delivery of their DVDs. Apparently it will have its very own site soon, and those of you with DVD–only plans will now do your business there instead of at Netflix. Basically, this is the final step in separating a by–mail service that they do not think will last a very long time, and making the name Netflix all about the instant streaming service.
And as for the video games, they will be offered as an upgrade much the same as they do for Blu-rays…which is actually a pretty good idea with Gamefly really being the only other one out there that offers games.
You can read Hastings’ full blog post with much more detail about the changes at the Netflix link below.
[Source: Netflix, Reuters]